On August 30, 2023, the U.S. Department of Labor announced its issuance of a Notice of Proposed Rulemaking Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employee (NPRM). The significant proposed revisions include a raise in the current salary threshold requirement for Fair Labor Standards Act (FLSA) exempt employees in Puerto Rico from $455 per week ($23,660 annually) to $1,059 per week (about $55,068 per year).

In the 2019 rule, which is currently in effect, the U.S. Department of Labor elected to preserve the salary level set in 2004 ($455 per week, or $23,660 or annually for a full-year worker) for employees in Puerto Rico, Guam, the U.S. Virgin Islands, and the Commonwealth of the Northern Mariana Islands, instead of applying the standard salary level of $684 per week ($35,568 annually for a full-year worker) that applied to employees in the 50 states and the District of Columbia. The salary basis pay requirement for exempt status does not apply to outside sales workers and some of the “learned professions,” such as lawyers, doctors, or schoolteachers.

If the U.S. Department of Labor approves the proposed rulemaking, any salaried employee to which the salary basis requirement applies that earns less than $55,068 per year would be guaranteed weekly overtime pay under the FLSA. Further, if the Puerto Rico Department of Labor and Human Resources amends its regulation to reflect this FLSA threshold adjustment, these employees could also lose their exempt status under local wage and hour laws and could be eligible to receive the statutory benefits available to non-exempt employees under Puerto Rico law. These may include daily overtime, meal period penalties, seventh (7th) day overtime pay, and statutory vacation and sick leave benefits.

Summarizing, the proposed rule would affect the following:

• Employees earning less than $55,068 per year would be entitled to receive at least time and a half (1½) of their regular hourly rate for every hour worked in excess of forty (40) hours in any workweek.
• The “highly compensated employee” threshold would increase from $107,432 to $144,414 (with use of commissions, nondiscretionary bonuses, and incentives to cover up to 10 percent). For purposes of the application of Puerto Rico laws, the employee must earn at least $100,000 annually and meet the other requirements established in the local regulation to be considered a “highly compensated employee.”
• The rule proposes a mechanism that would provide automatic updates of this salary threshold every three (3) years to reflect existing earnings data.
• It may apply the new standard salary level to employees in all territories that are subject to the federal minimum wage and to maintain a special salary level only for employees in American Samoa.

It will be extremely difficult for Puerto Rico employers to provide salary increases (a $31,408 increase if they currently earn $23,660 for a full-year worker) to their exempt employees to meet the new proposed threshold and maintain their exempt classification. The economic impact of this proposed rulemaking on Puerto Rico employers could be disproportionately higher than the impact it will have on employers in the 50 states and the District of Columbia.

The notice of proposed rulemaking will be open to public comment until November 7, 2023.

At O’Neill & Borges we will continue monitoring the development of this case. We are available to assist you with any questions you may have regarding this new standard.

For any questions or inquiries regarding this topic do not hesitate to contact us at info@oneillborges.com or your prime contact attorney at O’Neill & Borges LLC. Please refer to www.oneillborges.com.

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